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The rapid geographical expansion of the coronavirus Covid-19 and the high contamination rates – nearly 100,000 infections in approximately 80 countries by March 4 – have spread fear around the planet and disrupted global economic activity.

Investors have naturally been concerned and stock markets around the world suffered trillions of US dollars of losses in a single week (ending February 28) in what was the markets’ worst week since the financial crisis of 2008.

On March 2, mainly due to declarations of stimulus measures by central banks, some markets rebounded and erased part of the previous week’s losses. However, the following day, they were hit by new losses, which indicates a clear instability.

How were the leading global stock markets hit during the February coronavirus crash? How does the crash compare with previous market falls and especially with the previous viral outbreaks? How long will it take for markets to readjust? What are the latest predictions of the global economic growth that is certainly expected to suffer due to Covid-19 outbreak?

Worst week since 2008 crisis

Even though the novel coronavirus outbreak started in December 2019, financial markets did not react immediately as there was little information on how long it might last, whether China would be able to quickly contain it and prevent it from spreading to other countries, and the risks that such a spread would entail for the global economy.

With Covid-19’s expansion around the world, it was only a matter of time before the stock markets reacted to the new danger. The crash finally occurred in the week ending February 28, when leading stock markets around the world faced their worst week since the 2008 financial crisis.

China’s Shenzhen stocks led losses among major markets regionally as they closed sharply lower. The Shenzhen component was 4.8% lower.

The Shanghai composite was down 3.71%.

Hong Kong’s Hang Seng index dropped 2.42%.

The Nikkei 225 dropped 3.67%

Historic market falls

The “Historic Market Falls” graph lists the most important financial markets crashes since the 1929 great depression crash and up to the February 2020 Novel coronavirus crash Clearly the coronavirus crash looks less severe than previous ones as it ranks in the 5th place following the Great Depression, the Financial Crisis of 2008, Hitler’s invasion of France and the Black Monday crashes (in order of impact).

Indeed, the coronavirus crash wiped out no less than 5 trillion US dollars in share markets value in a week’s time, and with the virus quickly spreading to other countries, investors’ fears for their stocks is logically increasing.

However, by analysing previous viral outbreaks’ impact on financial markets, we can notice that in most cases stocks rallied over the 12 months following the outbreak. For instance, the wealth-management firm Cresset Capital studied the last five viral outbreaks’ immediate consequences on the stock markets (S&P 500 Index) and where they stood 12 months later.

In all five cases, the S&P 500 was up a year later compared to where it was the day before each crisis broke out. In two instances, the market rallied more than 20%, and the lowest gain was 7.8%. In most cases, 12 months later we reach the same conclusion as Cresset Capital’s study, i.e. markets not only readjust but make further gains as well.

As for the IMF and the World Bank, they were quick to issue a joint statement declaring their readiness to help “address the human tragedy and economic challenge” posed by the virus.

The European Central Bank said it “stands ready” to respond to signs of a slowdown, and Chinese officials approved 500 billion yuan ($71 billion) in financing to provide less-expensive loans to smaller enterprises struggling to resume operations.

Moves to reassure investors by central banks and regulators around the world did little to calm fears, however. Financial markets bounced back on March 2 only to fall again the following day.

If the coronavirus is partially to blame for the market losses due to the ambiguity surrounding the economic consequences of the outbreak, according to some analysts a sizeable market correction was overdue anyway, as some stocks were overpriced and readjustment was needed to rebalance. The coronavirus outbreak was just the spark that ignited the fire.

For now, the outbreak is still expanding and thus spreading fear and disrupting economic activity. Will history repeat itself and will we witness a readjustment in the next 6 to 12 months? Or will it be different this time?

There is no definite answer, only time will tell. Unfortunately, the biggest fears are ahead, particularly concerning global economic growth. The OECD has warned that an escalation of the outbreak could cut global GDP growth to 1.5%, half the current projected increase of 2.9%, and send some economies into recession.

This article was written with Ahmad Ismail, a Paris-based research consultant specialising in political-economic analysis and geopolitics.